Feeling down? Depression is a term that strikes an uneasy, immeasurable balance between psychological and economic conditions. It is proportional, not absolute, in its effects, but widely disparate in its meaning.
Today the NYT reports about the quandary that Barbara Corcoran, a Manhattan real estate executive, has recently been dealing with for an unnamed "Wall Street hotshot." The anonymous client was in a pickle: what to sell? The apartment in town, the country house in Connecticut, or the dream refuge in Oregon.
Ninety-year-old Addie Polk of Akron, Ohio shot herself in the chest as sheriff deputies arrived to evict her from her home last week. According to the AP, Countrywide Home Loans filed for foreclosure in 2007 and Polk's house, a home she has lived in since 1970, was purchased by Fannie Mae at a sheriff's auction in June, 2008. Polk, a widow and sole owner of the Akron property since her husband's death in 1995, is hospitalized, but expected to recover. Fannie Mae announced Friday it was forgiving Polk's debt and cancelling the foreclosure proceedings.
The housing crisis in the United States is the most serious economic downturn since the Great Depression. The burst of this bubble will have cost more money, effected more lives, and depressed more individuals and their families than any economic crisis in American history should the government fail to take immediate steps to resolve the rippling effects of an American Dream gone bust.
The government took its first real step, one that merely recognizes the outsized scope of the problem, last week, also on Friday, when US President George W. Bush signed into law a huge government engineered bailout of Wall Street financiers. That was the same week that the Dow Jones Industrial Average (DJIA) posted its single largest one-day point drop in history. It was the same week that Barbara Corcoran puzzled with her big shot client over which high-end pad to sell and 90-year-old Addie Polk shot herself as she was about to be evicted from the home she has lived in for thirty-eight years.
On April 2, 2007, New Century Financial Corporation filed for Chapter 11 bankruptcy in United States Bankruptcy Court, District of Delaware, in Wilmington. From January through March of 2007, the market capitalization value of New Century stock had plummeted over 95 percent. The company is currently not listed on the New York Stock Exchange (NYSE), but is still being traded in over the counter pink sheets.
In August of 2007 Countrywide Financial Corporation had withered from a home financing growth giant to a junk stock. On August 17, 2007, depositors started withdrawing money from the institution in what amounted to a classic bank run. On January 11, 2008 Bank of America announced it would purchase Countrywide for $4 billion. In September, 2008, Countrywide reported that an employee had stolen the identity information of its customers including social security numbers and birth dates. The company offered up to three months of credit monitoring for its customers. In August of 2007, Countrywide Financial Corporation owned just under twenty percent (17%) of all US mortgages.
Countrywide Financial Corporation, through its capital markets division, Countrywide Asset Management Corporation, services residential mortgage loans originated through the Federal Housing Administration (FHA) and Veterans Administration (VA) programs.
The National Housing Act of 1934 was created in the depths of the Great Depression because the banking system failed causing the financial system to meltdown freezing lending and the credit markets. Home ownership sank as banks recalled mortgages and foreclosed homes. Unemployed workers, unable to keep up with mortgage payments and with no source of income, lost their homes, declared bankruptcy, and experienced a drastic decline in standards of living. The FHA was created to improve housing conditions and standards, to provide a stable housing finance system by insuring mortgage loans, and to stabilize the housing market.
The Veterans Administration was created in July, 1930 in response to the advent and increase of Hoovervilles, named after President Herbert Hoover. Probably the best known Hooverville was created in the nation's capital following the Bonus Army protest march of some 43,000 veterans and their families on Washington, DC in 1931 through 1932 to demand expedited benefits and increased government services. Hoovervilles were prominently located in Central Park in New York City between 1931 and 1933, near the Port of Seattle from 1932 to 1941, in St. Louis along the Mississippi River, and in Brooklyn, New York. The purpose of the VA is to coordinate services for veterans, families, and survivors.
Countrywide Financial, in other words, serviced nearly twenty percent of the American mortgage market, primarily serving poor people and veterans.
In the election of 1932, US President Herbert Hoover, a political maverick, who in the presidential election of 1928 said that with God's help the United States was closer than ever to conquering poverty, was considered, in turn, a corporate statist, laissez-faire capitalist, and anti-Big Government advocate. He was defeated by Governor Franklin D. Roosevelt of New York, a patrician promising a New Deal for ordinary middle-class and working Americans.
On February 22, 2008 the United Kingdom nationalized Northern Rock plc, a large British bank that was over leveraged in the US subprime mortgage market. The problem first identified at Countrywide Financial Corporation was spreading overseas threatening the stability of the global financial system.
IndyMac Bank was created in 1985 as an offshoot of Countrywide Financial Corporation. Its purpose was to collateralize Countrywide loans too large to be sold to Fannie Mae or Freddie Mac. IndyMac operated as a combined thrift and mortgage bank to lend money for the purchase, development, and improvement of single-family housing. The bank also dealt in secondary mortgage products secured by home equity and other forms of consumer credit.
In late June and early July, 2008, IndyMac experienced a bank run as depositors withdrew their money ahead of reports that the bank had been unable to raise capital since May of 2008. On July 11, 2008, IndyMac Bank was placed in conservatorship by the Federal Deposit Insurance Corporation (FDIC) and, on July 14th, renamed IndyMac Federal Bank FSB in order to prevent its total collapse.
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