GM's woes one more blow to housing bubble [View All]

Low interest rates from the failed Fed let GM's finance arm offer cheap loans that helped owners use homes as ATMs. With rates rising and its own troubles, that party is over.

By Bill Fleckenstein

To state the obvious, General Motors' (GM, news, msgs) bleak first-quarter forecast last Wednesday was the big news of the day, the preannouncement heard 'round the world. But in our own "what, me worry?" market environment, people seemed unwilling (or unable) to connect the dots. So I will.

Along with Fannie Mae (FNM, news, msgs), GM is a significant cog in the financing of the housing ATM (which I have discussed often, including in my March 7 column.) Why does that matter? Because last Wednesday, the yield on GM's debt widened to 454 basis points (4.54 percentage points) over Treasurys. In my opinion, it won't be much longer before that debt is downgraded. GM has been trying to finance autos, homes and second mortgages at record-low interest rates, but it's hard to see how the company can continue to do so.

This will also continue to tighten the noose around Fed chief Alan Greenspan's neck. He must raise rates to maintain the pretense of addressing inflation concerns and weak-dollar issues. But Easy Al is in a box (along with the whole country) because of his policies and the ways folks have behaved.

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