Taking a closer look at the real estate bubble, financial advisor offers some insight.

Grand Rapids, MI -- (SBWire) -- 04/01/2011 -- Dennis Tubbergen is a financial advisor, advisor to financial advisors, author and talk show host. Recently, Tubbergen has been sharing excerpts from a book he is writing regarding where he believes the U.S. economy and markets are headed.

In his last excerpt, Tubbergen looked at how reductions in the Fed Funds rate from January of 2001 to August of 2004 correlate to the huge increase in the price of residential housing, an increase of some 50 percent in just three years.

“During this time, homeowners were encouraged to use their homes as ATM machines,” explains Tubbergen. “Pull the equity out of your home and spend it, invest it, or blow it – your home will continue to appreciate in value – that is what the commercials for many mortgage companies claimed.”

Tubbergen says consumers bit and they bit hard, further fueling the real estate bubble.

“Investment bankers smelled blood,” notes Tubbergen. “They were no longer hindered by Glass-Steagall, the act passed in 1933 that established the Federal Deposit Insurance Corporation and required banks to clearly define whether the institution was a commercial bank or an investment bank.”

According to Tubbergen, the Glass-Steagal Act was designed to prevent many of the abuses that took place in both lending and investing. But in 1999, 66 years after its original passage, the act was repealed, once again allowing banks to engage in commercial banking as well as investment banking.

“Bankers began to market low-interest loans using real estate as collateral as soon as the Federal Reserve began to reduce interest rates,” states Tubbergen. “Now that these banks weren’t limited to only commercial banking thanks to the repeal of Glass-Steagall, they could ‘package up’ these loans and sell them as collateralized mortgage obligations to investors, making money on the loan and on the selling of the loans that were packaged up as securities.”

And, in Tubbergen’s opinion, the more money that bankers made from this business, the more creative they became, both on the lending side and on the securitization of these mortgages.

“Just prior to the collapse of the housing market, many banks were offering sub-prime mortgages, payment-optional mortgages and rate reset mortgages -- high-rise mortgages – and they were still selling the securities that were comprised of these mortgages to investors,” claims Tubbergen. “I don’t need to tell you what happened to the housing bubble. If you own real estate you know. Your home is worth far less than it once was as a result of the debt-fueled real estate bubble.”

Go to Tubbergen’s website at http://www.dennistubbergen.com to read more about where he believes our economy could be headed.

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at the above website. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at www.everythingfinancialradio.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee.

Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.