The outlawing of short selling in 799 companies has driven the markets up to a record breaking degree across many markets in Europe and the US. The pop has come from short covering. Panic over…..right?
Wrong. This is a temporary measure to allow central banks to work to stabilize the system. The system is still on its knees because of housing….fact.
Americans and Europeans are more in debt with less in savings that at almost any time in history. Inflation is high and unemployment is rising fast.
Will housing rebound on the back of these measures? No…and here is why.
5m US households are in default or foreclosure on their mortgages. Housing stock piles are still at near record levels. Banks will continue to severely reign in lending in the the near term, as Hank Paulson hinted today as an the non uptake of teh Feds $180bn showed yesterday. The treasury will look at the regulation of the financial system to ensure that the loose lending of the past deosnt continue in the future.
So, with jobs being lost right, left and centre, discretionary incomes being squeezed from all angles, low savings, high indebtedness and the tax payer taking on huge liabilities (requiring taxes to rise to fund them), what has changed in housing market?
Nothing.
All that has happened is that Wall Street has ring fenced and sold its toxic paper to the taxpayer. There may well be more money available for lending to homebuyers, but we wont see a return to liar loans any time soon…so who will be able to benefit from this extra lending? It wont be those unworthy of credit…thats what got us into this mess in the first place…yet those are exactly the people who must be allowed to borrow to get us out of this mess quickly!
Game changer….yes…for the holders of toxic paper…but not for households…they are now even more in debt today than they were yesterday and their ability to borrow has just nosedived as a result of the sweetheart deal to Wall Street.
