The U.S. has been able to recover from the recession and have enjoyed a fake recovery for several years. Real estate investors, mortgage buyers , Wall Street, and Wall Street all have witnessed the return to good times as home prices rise again. This space has previously discussed why the recovery isn’t real and how it was orchestrated by massive amounts of government spending. This new bubble is being created by poor financial leadership and excessive spending.
This fake recovery has a major downside. It is the complete lack of reform in institutions that were key players in the collapse. If I have a bad few quarters in which I only buy a few mortgages, I will know that I must do something differently in my marketing, operations or any other areas. A family that has experienced the unfortunate event of a foreclosure or bankruptcy will most likely make big changes in their spending and budgeting.
This has not been the case with our government or its Wall Street allies. The banks are larger than ever, and the executives keep getting huge bonuses. Real reform in the banking and housing industries has not been achieved and it does not appear that it will. Fannie Mae (and Freddie Mac) are two examples. They buy mortgages from banks and repackage them as securities. In 2008, regulators placed these nearly bankrupt entities under conservatorship. Together they have taken nearly $200 billion from taxpayer pockets (per Bloomberg). These companies should have been shut down, or at least heavily restructured long ago. They continue to operate in the same manner as before and dominate the mortgage market. Each is generating very little profit, which almost guarantees that there will be no change. It is quite likely that they, along the FHA will be responsible for the next housing crisis. It’s hard to believe that some things will never change.