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>It seems that we made a pact with the devil by positioning housing as an investment asset. That was certainly a mistake, but the much larger mistake was made

>It seems that we made a pact with the devil by positioning housing as an investment asset. That was certainly a mistake, but the much larger mistake was made (and continues to be made) by the FED (and other central banks at the FED's insistence). FED efforts to prop up the housing and equities markets through QEinfinity, Operation Twist, the FOMC, and countless other FED mechanisms designed to prop up markets (and owners) at the expense of everyone else have led us to the situation we are in now. If not for FED chicanery, housing prices would fall precipitously to meet real demand. People would be able to afford a place to live and speculators would realize that homes are places to live and not investments. >If I bought shares in AAPL at $50 (now $100+) and someone comes along asking that AAPL let them buy some shares for say, $65, I'm obviously not going to be happy since the value of my investment is under threat. If nobody was willing to to pay more then $65 for your Apple shares, then in a free market, like it or not, your shares are worth only $65. Just because they were $100 at one point and you "arent happy" that they arent still worth $100, doesn't mean the government should step in and offer $100 when the market only offers $65. That's the problem we have now. In the fantasy world that the FED is trying to propagate they can continue to offer $100 no matter how low the actual demand for your stock is. In reality, all their efforts to prop up your stock have eliminated free markets, dried up "real" liquidity, and massively disrupted equity, bond, fx, and all other markets. The longer they try to extend and pretend the worse the problem gets. For example, the bank of Japan owns over 60% of all ETF's in Japan. 60%!! Things are not going to end well.

jhulla 10y ago
Get outta here with your free markets. In free markets, those that lose big get up off the table. In our TBTF markets, the bigger your loss, the greater the odds that your national Treasury will backstop you. Have you helped out your local banker today?
- deleted 10y ago
  [deleted]
ScottBurson 10y ago
> If not for FED chicanery, housing prices would fall precipitously to meet real demand. Maybe in some places, but I don't think that would happen in Silicon Valley. As the article says, the population of Palo Alto doubles during work days. A lot of those people would rather live there than commute from wherever. Silicon Valley is not a creation of the Fed.
- StanislavPetrov 10y ago
  Where do you think VC money comes from? Massive profits from bond, equity, and real estate profits courtesy of the FED. Cheap money borrowed at 0% thanks to the FED. Some of us older people were around to see a very similar situation in the 90's (although not nearly as bad). Greenspan debuted ~0% interest rates and the Clintons fully embraced the Reaganomic/trickle-down philosophy (now called "wealth effect"). They opened the borders via NAFTA and deregulated Wall Street via Rubinomics. It all fell apart when the tech bubble burst in 2000. Instead of fixing the problem, Bush doubled down on the same broken policies, which led to the collapse of the late 2000's. Again, Obama and the FED doubled down, trying to fix the broken, cheap money policies with even more cheap money. Here we are 8 years later and markets have basically ceased to exist. Central banks own far more bonds and equities in many counties then private parties do, and they are only increasing their buying. Growth is non-existent even by the manipulated, mostly-worthless metrics employed by the central banks. The insane wealth of Silicon Valley is not only a creation of the FED, its a good barometer for how out of whack our economic system is.
  - karma_vaccum123 10y ago
    And ZeroHedge assured me society would collapse in 2009...guess enough people don't subscribe to InfoWars
    - StanislavPetrov 10y ago
      Society is crumbling rather then collapsing. How long the process will take is anyone's guess, but you have your head buried deep in the sand if you don't see the deterioration.
hkmurakami 10y ago
Re:AAPL There's a market for $AAPL shares at $100+. Some people are happy paying this price. Some people think this is too high. There's similarly a market for Palo alto houses at $2.5m. Some people are happy paying this price. Some people think this is too high. When someone comes along asking AAPL to sell them shares of $AAPL for $65 when there's a market for them at $100+, you as the holder of other analogous $AAPL shares won't be happy since such an occurrence will diminish the value or your investment. When someone comes along asking a city for as additional housing stock at $X << $2.5m, you as the owner of an analogous investment asset will respond to the threat of your investment coming under siege. Non-investment aspects of housing's role in society will be greatly diminished in the homeowner's mind, when the home represents 20-50% of their net worth (given that their minds have been conditioned to treat housing as an investment asset).
- StanislavPetrov 10y ago
  You're missing the point. When there isn't a market for $AAPL shares at $100, but the government steps in to offer $100 to prop up the price of $AAPL stock, there is a problem. That is the issue with housing prices, stocks, bonds, debt, and everything else on the world stage. This central bank interference destroys price discovery and disrupts prices everywhere, including Palo Alto, even if they aren't directing bidding on homes there.
  - lisper 10y ago
    That, and also no one needs AAPL stock in order to live, but everyone needs housing. So the price distortions in housing affect society more severely than price distortions in AAPL stock.
    - sangnoir 10y ago
      > That, and also no one needs AAPL stock in order to live, but everyone needs housing If housing should be protected from 'distortions', please explain how foreclosures help? I'm not being snide - my economics knowledge is basic, kindly explain it like you would to a high-school graduate.

jhulla 10y ago

Get outta here with your free markets. In free markets, those that lose big get up off the table. In our TBTF markets, the bigger your loss, the greater the odds that your national Treasury will backstop you. Have you helped out your local banker today?

deleted 10y ago
[deleted]

ScottBurson 10y ago

> If not for FED chicanery, housing prices would fall precipitously to meet real demand. Maybe in some places, but I don't think that would happen in Silicon Valley. As the article says, the population of Palo Alto doubles during work days. A lot of those people would rather live there than commute from wherever. Silicon Valley is not a creation of the Fed.

StanislavPetrov 10y ago
Where do you think VC money comes from? Massive profits from bond, equity, and real estate profits courtesy of the FED. Cheap money borrowed at 0% thanks to the FED. Some of us older people were around to see a very similar situation in the 90's (although not nearly as bad). Greenspan debuted ~0% interest rates and the Clintons fully embraced the Reaganomic/trickle-down philosophy (now called "wealth effect"). They opened the borders via NAFTA and deregulated Wall Street via Rubinomics. It all fell apart when the tech bubble burst in 2000. Instead of fixing the problem, Bush doubled down on the same broken policies, which led to the collapse of the late 2000's. Again, Obama and the FED doubled down, trying to fix the broken, cheap money policies with even more cheap money. Here we are 8 years later and markets have basically ceased to exist. Central banks own far more bonds and equities in many counties then private parties do, and they are only increasing their buying. Growth is non-existent even by the manipulated, mostly-worthless metrics employed by the central banks. The insane wealth of Silicon Valley is not only a creation of the FED, its a good barometer for how out of whack our economic system is.
- karma_vaccum123 10y ago
  And ZeroHedge assured me society would collapse in 2009...guess enough people don't subscribe to InfoWars
  - StanislavPetrov 10y ago
    Society is crumbling rather then collapsing. How long the process will take is anyone's guess, but you have your head buried deep in the sand if you don't see the deterioration.

hkmurakami 10y ago

Re:AAPL There's a market for $AAPL shares at $100+. Some people are happy paying this price. Some people think this is too high. There's similarly a market for Palo alto houses at $2.5m. Some people are happy paying this price. Some people think this is too high. When someone comes along asking AAPL to sell them shares of $AAPL for $65 when there's a market for them at $100+, you as the holder of other analogous $AAPL shares won't be happy since such an occurrence will diminish the value or your investment. When someone comes along asking a city for as additional housing stock at $X << $2.5m, you as the owner of an analogous investment asset will respond to the threat of your investment coming under siege. Non-investment aspects of housing's role in society will be greatly diminished in the homeowner's mind, when the home represents 20-50% of their net worth (given that their minds have been conditioned to treat housing as an investment asset).

StanislavPetrov 10y ago
You're missing the point. When there isn't a market for $AAPL shares at $100, but the government steps in to offer $100 to prop up the price of $AAPL stock, there is a problem. That is the issue with housing prices, stocks, bonds, debt, and everything else on the world stage. This central bank interference destroys price discovery and disrupts prices everywhere, including Palo Alto, even if they aren't directing bidding on homes there.
- lisper 10y ago
  That, and also no one needs AAPL stock in order to live, but everyone needs housing. So the price distortions in housing affect society more severely than price distortions in AAPL stock.
  - sangnoir 10y ago
    > That, and also no one needs AAPL stock in order to live, but everyone needs housing If housing should be protected from 'distortions', please explain how foreclosures help? I'm not being snide - my economics knowledge is basic, kindly explain it like you would to a high-school graduate.