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Sedona House Prices, Timothy Geithner, and Toxic Assets

Housing-Market / US Housing Mar 12, 2009 - 05:01 AM GMT

By: Kevin_Geary

Housing-Market I was shocked to see the latest issue of the local Sedona newspaper today. I decided to glance at the classified section of houses for sale, and the prices have fallen so much since I last paid any attention to it that I found it difficult to believe. For instance, there's a 2,400 sq.ft. home with 3 bds, 2 bths, with views, on a 1/4 acre, with a pool and a hot tub, here, in the Village of Oak Creek, near where I live, and it's offered for sale at only $339,000! Back in 2003, we sold our house for $275,000 and our house was only 1,820 sq.ft. and has no pool or hot tub! If that $339,000 price was to be translated into the value of our house, I think our house would now be worth less than what the current owners paid nearly 5 1/2 years ago, at the very beginning of the boom here (Nov. 2003). There are other houses with incredibly low prices as well, but the 2,400 sq.ft. one really stood out to me!

The reason I'm mentioning this is for two reasons. First of all, it shows just how things have changed, even from just 6 months ago, when prices were still pretty high and unrealistic; and it also has made me wonder why and how Timothy Geithner, the Treasury Secretary, thinks he can ever make a profit from buying these "toxic assets" from the banks, which he apparently is in the process of planning to do. Millions of home owners, even those that bought over 5 years ago at the beginning of the madness, are obviously going to be way underwater on the value of their houses, based on the huge fall in asking prices here. So why, given this, are we planning to buy hugely overvalued assets from banks, that should really be forced to take their losses, just as homeowners and mortgage holders will have to do? It would be simpler, and surely cheaper, to allow the banks to write off their huge losses on the "toxic assets," otherwise known as mortgage backed securities, and simply allow them to have a tax deduction against future earnings, when the banks, divested of these hugely diminished-in-value "assets," could get back to the regular normal business of banks, and take deposits and lend no more than 10 times the value of their deposits.

This would ease the credit markets, recognize the real truth (that these "assets" are worth 50% or less of their original hugely inflated "value"), and turn the page, instead of the taxpayer buying up worthless "paper" from the banks, and having to sit on them for perhaps a decade or more, before they return to anywhere near the values they held just a year, or even 6 months ago.

The more I see what's going on, especially at "ground level," it becomes increasingly apparent that the insane rallies for a couple of days on Wall Street, are at best "sucker rallies," and at worst a complete lack of understanding about what has, and is, really happening. If the people on Wall Street and the politicians in Washington were to just take a tour of the country, read about the near total collapse of other countries' economies, such as Japan, Ireland, England, Russia, etc., and see for themselves the true state of things, nobody in their right mind would be advocating buying up "toxic assets" at inflated prices, and nobody would be talking on the TV shows about "rallies" and "bottoms" for the real estate market! When more than half a million jobs are being lost every month, and there are no car sales, and there are houses in a desired place (Sedona, AZ), being offered at what amounts to nearly "fire-sale" prices, then we are obviously nowhere near a bottom, but merely less than halfway down the cliff-side!

So Geithner's idea of buying the losses of banks at anywhere near the full prices of a year ago, is simply nuts! There's simply no other way to describe it. And we'll all be nuts if we allow it to happen.

By Kevin Geary

Kevin Geary is an artist who lives in Sedona, Arizona. He was the youngest political cartoonist on the Financial Times at the age of 19. He had his first one man show at 20, opened by the prime minister of Great Britain, Harold Wilson. He has had over 60 exhibitions of his work; has work in several major museums, including the National Portrait Gallery in London, and his work has sold at major auction houses, such as Christie's, in London, Whyte's in Dublin and Doyle in New York.

He has followed politics, history and economic history for many years, and has also written about it elsewhere online. He predicted this depression long before it happened, timed the collapse of the stock market in June last year, long before it happened, and his stock picks have often been very accurate. The four stocks he picked on January 1st, 2009 to do well (Amazon, Apple, Baidu and Google ), are all up from the beginning of the year. He does not offer specific public advice about stocks, but he has written from time to time about long and short term trends in the political and economic realm.

© 2009 Copyright Kevin Geary - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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