The problem is that this financial catastrophe has been so well-disguised that it is almost impossible to name it, let alone determine when it will cross the finish line. First it was the sub prime crisis, then it was the banking crisis, then the financial crisis. The experts stood on the corner taking turns shouting “Now! No, now! No, now! This time for sure! Now!”
They are trying to pick the winner of the Kentucky Derby without understanding that what they are looking at is a sawhorse. This is not your father’s recession, this is the twilight zone. Business will not just gradually improve until we’ll all forget these difficult times. We are watching the deconstruction of our economy. Chrysler is in bankruptcy; GM will soon follow suit. The former automakers will close nearly three thousand dealerships and lay off, permanently, almost 200,000 workers.
Housing starts this month, here, in what should be the peak of the home building season, were at the lowest level since 1945. In 1945 the population of the United States was one half of what it is today; it had twelve million men under arms and most of them far from home. Lumber and building materials were rationed and in many cases unavailable. So calling a bottom in this economy is like calling out to the falling man.
Mortgage rates are falling but few are taking; there is a pall of fear over the rational people in our economy. The optimism and faith in our economic strength is today totally inverted into a negative image of itself. Two years ago the foreclosures began and each time the pundits claimed, “This is the worst of it.” And each time they have been wrong. Two million homes foreclosed, four million homes foreclosed, now eight million homes foreclosed, and before Christmas it will be ten million homes foreclosed.
The first wave were those living on the margins already, overstretching for a dream just out of reach and flying too close to the sun. And there were the speculators trying to make a buck the way their heroes on Wall Street did it, without breaking a sweat and while using someone else’s money. They also flew too close to the sun. The second wave were the adjustable rate mortgages, ticking time bombs set to go off long after the mortgage bankers themselves had passed the paper along up the system.
Now we have come to the third wave. “We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”
“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”
These are prime mortgages, these are homeowners that once had equity, and their numbers are growing like a tsunami. In the three months ending in February the number of loans where the lender took possession of the property rose by almost five hundred thousand homes. That is an increase of 30% in three months, and these are not people who bought homes they couldn’t afford or were trying to flip for a profit. These are people whose jobs have vanished, who in many cases have lived in those homes for years. Homes that they can no longer afford because they no longer have jobs.
In dollar amounts more than $717 billion in loans are now in the distressed category since February. The Obama administration is offering an aid package in which the lenders make all the decisions, worth $75 billion. It is like sending a ten-pound bag of rice to Sudan and claiming we’ve solved world hunger. It is a rescue for maybe one in ten while the failure of the other nine negates any benefit; it’s pissing on a forest fire.
Each foreclosure costs the banks $50,000, and the accelerating number of losses threatens to swamp the bailout. There is a certain irony in trying to save the banks while ignoring the people who, without assistance, then swamp the banks with further losses.
The government's stress tests for the banks concluded that the banks need another 75 billion dollars, pushing their overall losses above a trillion dollars by 2010. But they aren’t just bank losses; they are our losses, our neighbor’s losses. Our family and friends' losses, plummeting towards the ground at a remorseless speed.
The losses accelerate as the speed increases as the pundits try to calculate. But do they understand what it means when spending at grocery stores falls? How do you factor into the equation what it means when prime borrowers are losing their homes and Americans are eating less? That sound of a whistling in our ears and the sight of the approaching earth growing larger by the second should scare the hell out of us.
When the bottom is reached, who will care? The time to act to save the falling is now! The administration’s band aids and coppers for the poor might make for good press releases, but when that giant splat comes, and come it will, what will they matter? What will it matter where the bottom is if there is no way out of it?