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Economy-Economics- US (900) Banking (531) Economy Recession (531) Markets (529) Credit (525) Economy-Economics- World (444) Mortgage Crisis (300) Housing (178) Real Estate Mortgages (115) Consumer Affairs Mortgages (91)
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The dollar took another pasting on Wednesday, sliding to $1.49 on the euro; another new record. Gold shot up to $814 per ounce. Oil continues to flirt with the $100 per barrel mark, and the yen rose to 107 per dollar forcing a sell-off of hedge fund assets levered through the carry trade. Jon Basile, economist at Credit Suisse, summed it up like this: "There's a heck of a lot of bad news out there." Indeed. In California Governor Arnold Schwarzenegger has joined with four mortgage lenders to freeze adjustable interest rates (ARMs) for some of the state's highest-risk borrowers; another unprecedented move. The Governor hopes to avoid a collapse of the California real estate market which has gone into a tailspin. Home sales have plummeted more than 40 per cent for the last two months. Prices have dropped sharply---roughly 12 per cent statewide. New construction has slowed to a crawl. Layoffs are steadily rising. Jumbo loans (mortgages over $417,000) have been put on the "Endangered Species" list. Even qualified borrowers can't get mortgages. Nothing is selling. California housing is "off the cliff". Schwarzenegger's plan to keep over-extended subprime mortgage-holders in their homes faces an uncertain future. What incentive is there for homeowners to continue paying exorbitant monthly rates when their payments are not applied to the principle? The homeowners would be better off bailing out, accepting foreclosure, and starting over with a clean slate. It's unrealistic to thinks that Schwarzenegger can stop the tidal wave of foreclosures that are sweeping across the state. An estimated 3 million homeowners will lose their homes nationwide. If you want to blame someone; blame Alan Greenspan. He's the one who created this mess. According to the economist Mike Shedlock:
The problem has gotten so serious that even Secretary of the Treasury, Henry Paulson, is putting up red flags. Last week, Paulson ignited a sell-off on Wall Street when he made this statement:
The desperation is palpable. Like Schwarzenegger, Paulson is trying to get mortgage-lenders to provide a safety net for struggling borrowers who are defaulting on their loans. Paulson is calling for emergency legislation that will allow the Federal Housing Administration to play a greater role in the relief effort. The FHA has already expanded its traditional role by taking on hundreds of billions in extra debt just to keep a few "private" mortgage lenders and banks from going bankrupt. Of course, when Paulson's plan goes kaput and the debts pile up; it'll be the taxpayer that foots the bill.
Fannie and Freddie, have already posted enormous quarterly losses and don't have the capital reserves to put millions of subprime mortgage-holders under their "government-sponsored" umbrella. Paulson is just grabbing at straws. Similar troubles are brewing in the broader market where late-payments and defaults have spread to credit card debt and new car loans. Every area of "securitized" debt has suddenly veered off the road and into the ditch. Last week the Fed injected more credit into the teetering banking system than anytime since 9-11.
Mike is a freelance writer living in Washington state.
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