1. The Aftershock Perspective on the Housing Debt Market and Government’s Changing Role April 5, 2011 Apartment Finance Today Dallas, Texas Robert A. Wiedemer, Author - America’s Bubble Economy and Aftershock Managing Director, Absolute Investment Management 703-787-0139bwiedemer@absolute-im.com

2. America’s Bubble Economy John Wiley & Sons, October 2006 Accurately predicted the fall of the real estate bubble and the stock crash Accurately predicted the fall of the real estate bubble and the stock crash Chosen by Kiplinger’s as one of the Best Business Books of 2006 Chosen by Kiplinger’s as one of the Best Business Books of 2006 Paul Farrell, Senior Columnist at Dow Jones MarketWatch, praised the book: “In short, America's Bubble Economy's prediction, though ignored, was accurate.” Paul Farrell, Senior Columnist at Dow Jones MarketWatch, praised the book: “In short, America's Bubble Economy's prediction, though ignored, was accurate.”Aftershock John Wiley & Sons, November 2009 Wall Street Journal Bestseller Wall Street Journal Bestseller In its 15 th printing with over 225,000 copies sold In its 15 th printing with over 225,000 copies sold Seen on CNBC’s Squawk Box and Fox Business News Seen on CNBC’s Squawk Box and Fox Business News Quoted and reviewed by Barrons, Reuters, Financial Times, WSJ, AP, Hedge Fund Journal, Seeking Alpha, Euromoney and others Quoted and reviewed by Barrons, Reuters, Financial Times, WSJ, AP, Hedge Fund Journal, Seeking Alpha, Euromoney and others Chosen by Smart Money magazine as one of the five Best Investment Books of 2009 Chosen by Smart Money magazine as one of the five Best Investment Books of 2009

3. America’s Bubble Economy and Aftershock Abridged America’s Bubble Economy and Aftershock Abridged A virtuous upward spiral of rising bubbles have worked together to boost the economy for the last two decades. Sooner, rather than later, this will become a vicious downward spiral of falling linked bubbles that push the economy down. 1.Housing, stock, private credit, consumer spending bubbles already starting to pop resulting in current downturn 2.Long term, popping of these bubbles puts pressure on the two biggest bubbles—Government debt and the dollar

4. How Do you Know You Have a Problem in Your Financial System? How Do you Know You Have a Problem in Your Financial System? The bank returns your check marked “Insufficient Funds” and you have to call the bank to find out if they meant you or them.

5. Overview 1.Financial reform—Is more regulation the answer? 2.How much will the role of government change in the current housing debt market? Can we privatize the market? 3.Longer term issues affecting the housing debt market—the Aftershock perspective

6. Financial Reform 1.Two new agencies 2.Limitations on prop trading, etc. 3.Was the housing bubble/financial crisis really caused by a lack of regulation? 4.Was the Internet bubble caused by a lack of regulation?

7. Government’s Changing Role in Housing Finance Proposals: 1. Get rid of Fannie and Freddie 2. Hybrid 3. Fannie and Freddie as back-up

8. Impact on Down Payments 1.As of end of February FHA guaranteed 46% of all mortgages—3% down payment 2.What would higher down payments do to housing industry? 3.In first half of 2010, household creation was zero for first time in 30 years—basic driver of housing demand 4.Do we want to keep down payments low?

9. Impact on Interest Rates 1.Government effectively guarantees almost 90% of all mortgages 2.What would interest rates be without the guarantees—lots of risks in mortgages 3.In 2008 spread widened to 300 bps 4.Would guarantees sold by government to banks be better?

10. Change of Administration 1.What if Senate and presidency changed? 2.Still have down payment and interest rate issues 3.Some sort of replacement of Freddie/Fannie more likely, but see bullet #2

11. Longer Term: What People Want to Hear

12. Could This Cause Inflation? It’s not just what the Fed has printed, but also what it will print in the future. Source: St. Louis Federal Reserve Bank Source: St. Louis Federal Reserve Bank

13. Key Question How much can the government increase the money supply, as defined by the monetary base, before it causes How much can the government increase the money supply, as defined by the monetary base, before it causes inflation--long term (2-5 years)? inflation--long term (2-5 years)? A.100% B.200% C.300% D.400% E.500% F.Never

14. If No Down Side, Let’s Do More! If No Down Side, Let’s Do More! 1.Nothing but benefits to the stock market, debt market and the economy 2.Ben deserves two Nobel Prizes for his work in finding the perfect system for funding deficits 3.But, if it causes inflation and pushes up interest rates, could be a big game changer for housing finance

15. Continuing Pressure on the Fed to Keep Printing Continuing Pressure on the Fed to Keep Printing 1.Massive deficits put strong continuing pressure on Fed to keep printing 2.Will we have meaningful deficit reduction that would take off that pressure? Will Congress get religion? 3.Keep your eye out for inflation in another 1 – 2 years

16. US Government Is Largest Holder of Adjustable Rate Debt in the World Adjustable Rate Debt in the World

17. Interest Expense Could Consume All of Our Tax Income

18. Good Time to Do Some Financing Good Time to Do Some Financing 1.Things could change with inflation and interest rates 2.Government unsettled 3.Change of party in Senate and Presidency could help, but there are limitations 4.Fixed rates are low