Sunday, April 26, 2009

U.S. Federal Reserve Bank Earned $32 Billion in 2008 : Bankruptcy Law and Policy : Law Prof Todd Zywicki on the Housing Crisis : Real Estate Sales

One must always recall that whenever money is being lost somewhere, it is being made elsewhere. The world's financial markets are in a constant seesaw battle for supremacy.

It is thus no surprise to us that the U.S. Federal Reserve Bank, in spite of having absorbed the assets - including the so-called "toxic assets" - of the "bankrupted" Bear Stearns and AIG companies, posted a $32 billion profit for the year 2008. What goes on here?

Joshua Zumbrun reports at Forbes.com on the Fed in What Bank Earned $32 billion In 2008? Take a look at the numbers there, which suggest that much of the current media panic is overstated and is - sadly - contributing to a mood of gloom which is often not warranted.

In other words, one should be careful about believing all the negative hype you can read in the newspapers. The actual realities below the surface may actually look much different.

The so-called "housing crisis", for example, is a case in point.

As Man Friday, Peter Robinson reports at Forbes.com in The Housing Crisis Isn't A Crisis on George Mason law prof Todd Zywicki and his forthcoming book Bankruptcy Law and Policy in the Twenty-First Century (Yale University Press, 2009) in which he suggests that there are three distinct housing markets and only one of these is actually in distress, in part due to former Fed chairman Alan Greenspan driving down the price of adjustable-rate mortgages (ARMs), which sent house prices through the roof. This third type of housing market - which includes retirement and second homes - is focused in the Sun Belt, whereas Zywicki is quoted as saying that "41 out of the 50 states have foreclosure rates below the national mean."

Accordingly, one has to be careful in applying the idea of a "housing crisis" globally, even though it may actually be concentrated only regionally.

A similar message is being sent by Joel Kotkin in The American Suburb Is Bouncing Back: Don't believe the urban-living fundamentalists, where he points out that California real estate sales are picking up, to which he adds:

"Nor is this merely a Californian phenomenon. Nationwide, existing home sales--predominately in the suburbs--have been on the rise for the last few months. The strongest growth is occurring in Sunbelt markets in Arizona, Nevada and Florida, as well as in California. These places experienced some of the greatest surges in prices, which forced many buyers to turn to subprime and interest-only loans."

As Kotkin writes:

"George Guerrero, a top agent at Advantage Real Estate in Chino Hills, says he can see the light, with sales picking up and inventories finally beginning to drop ... it's all enough to make George Guerrero a born-again optimist. "There's something healthy just beginning to happen out here," he says. "This time people with good credit are getting good deals at good prices. It's a wonderful thing to see.""

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