Many important issues have gotten lost in all the circus of the nomination campaigns - Iraq, global warming, spiking oil prices, troops losing and taking their lives, and a sinking economy to name a few. I am sure it is just the usual "follow the spectacle," but there does seem to be a plot to bury the story of the economy - and the story behind the story.
Remember the so-called "sub-prime" mortgage crisis, with the efforts to portray it as lenders giving mortgages to folks who had "bad" credit? This was spun (briefly before even this disappeared) as "those folks got what was coming to them." However, the issue was (and is) less about borrowers with "bad" credit than those who had not built a credit history. It was also about rich folks trying to cash in on a peaking housing market, and developers doing the same (emphasis mine):
Similar to other banks, most of Umpqua's credit problems have come in the residential sector. About 75 percent of the loans now lumped in the troubled category as "nonperforming assets" are loans to residential developers, said Ron Farnsworth, Umpqua's senior vice president for finance.
Who is really getting slammed by the mortgage debacle? Women - who were 40% of the borrowers in Baltimore, half of them "sub-prime."
Racial minorities who after struggling to get into the housing market (and hence wealth building) have lost more ground than they gained - an estimated $163 to $278 billion by the time the crisis is over. There is almost a 40% difference in the mortgage losses between whites and racial minorities - a clear signal of ongoing institutionalized racism.
More than 2 million subprime borrowers face higher mortgage costs and the possible loss of their homes if they cannot meet the payments. Studies have found that blacks and Hispanics were likely to be charged higher interest rates on subprime loans than whites with similar credit ratings. (Predatory Lenders Still Seen Targeting Minorities)
Renters whose landlords took the bait on the "easy" and "creative" credit terms. And yes, those renters are more likely to be women and racial minorities. Renters are facing skyrocketing rents and evictions as landlords try to recoup their losses. It is estimated that 20-45% (depending on the area of the country) of the mortgage foreclosures are on rental properties. Further, many of those losing their homes are also losing both deposits and a month's rent. Not surprisingly, more than a few are going from apartment dwellers to homeless.
The China Daily reported that the world stock exchanges lost $5.2 trillion in January in fallout from the U.S. mortgage collapse, and the early estimates of mortgage losses are $400 billion - which seems on the low side to me.
But, to speak of these "losses" is duplicitous at least. That $400 billion is in somebody's pocket, as is the $5.2 trillion in losses (it is called profit-taking). I don't have the resources to determine where that money went, but it is pretty clear where the bailout money is going.
According to a report in the Feb. 18, 2008 Financial Times, banks borrowed $50 billion from the Federal Reserve in January. They did this through an instrument initiated in December 2007 to improve liquidity in the market called a Term Auction Facility (TAF). This offers lenders below prime rate, short term loans. Other central reserves in Europe have similarly pumped money into the market.
While purportedly aimed at staving off a credit crisis, the Financial Times states that analysts are nervous about the lending scheme:
"The TAF . . . allows the banks to borrow money against all sort of dodgy collateral," says Christopher Wood, analyst at CLSA. "The banks are increasingly giving the Fed the garbage collateral nobody else wants to take . . . [this] suggests a perilous condition for America's banking system."
Indeed! Here we have a situation where the U.S. government deregulated banking, setting up a Ponzi scheme for both the credit and mortgage markets, which accelerated a housing bubble which has burst at the same time as the risky loans (not risky borrowers) hit their margins. Then, those engaged in the fleecing of borrowers (particularly borrowers faced by systemic predatory and discriminatory lending practices) are "bailed out" with our tax dollars, so that they can continue to fleece the people.
Not to leave the well-heeled behind, the economic "stimulus" plan signed by Bush has a little present for those in the high-priced home market. Namely, the limit on government backed home loans have jumped from $400,000 to $729,750 and jumbo loan rates are dropped 1%.
The change in loan limits, which allows the federal housing agencies Fannie Mae and Freddie Mac to purchase or guarantee the mortgages, is intended to encourage lenders to write more mortgages because they can easily sell them to the agencies.
Yes indeed. Sell those attractive "jumbo loans" to the same folks who created the sub-prime crisis.
Given all this expropriation of the wealth of the people, it is not too surprising that there are a growing number of folks who are looking beyond recession to an "economic meltdown." Martin Wolf reports on Professor Nouriel Roubini of New York University's Stern School of Business. Roubini predicts the worst housing crash in U.S. history which could take about "$6,000bn in household wealth." He estimates that about 60% of all mortgages originated in 2005-2007 had "reckless or toxic features." Sixty percent ... the crash could impact over 10 million households.
Thank you for this article. You have presented a detailed analysis of the orchestration of what is to come, and what I believe will be a financial meltdown on a global scale. The real impact of which will be on the poor and newly created poor class derived from the elimination of the middle class.
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Barbara Peterson (46 articles, 80 quicklinks, 3 diaries, 416 comments)
on Monday, February 25, 2008 at 2:06:25 PM
We have reached yet another era of wealth grap. The only things left to transfer apparently is the wealth of the middle class and the land (and resources) that has been deemed "public" land. Not sure what the top swine will go after when all that is exhausted. It is beyond a short-sighted strategy, but immediate gain seems to be the game.
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Rowan Wolf (62 articles, 0 quicklinks, 2 diaries, 80 comments)
on Monday, February 25, 2008 at 2:28:18 PM
If I loan you $100,000 on your house, goose your interest rate so you can't afford to pay--foreclose on the house, which has now declined in value to $90,000--that $10,000 is not in anyone's pocket, IT IS GONE.
Not only is the ten grand gone, but the entire hundred grand is gone as well, if I can't find a buyer for the house and it gets ransacked beyond recognition. THAT'S a major worry to the lenders. Not only do they have houses back, they have no idea what the 'salvage' value is.
I've written a bunch of articles on this and yet the amazing thing to me is that the Dow-Jones is still comfortably above 12,000.
Apparently, those who "didn't get it" before, still don't. A major meltdown coming? Yeah, I think so. The next shoe to drop will be credit-card defaults, as the pressed become more pressed and collapse along with the house of cards the banks invited them to occupy. Credit-card debt is a WAY BIGGER number than mortgages at risk.
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Jim Freeman (108 articles, 40 quicklinks, 182 diaries, 353 comments)
on Monday, February 25, 2008 at 4:29:40 PM
"But, to speak of these 'losses' is duplicitous at least. That $400 billion is in somebody's pocket, as is the $5.2 trillion in losses (it is called profit-taking). I don't have the resources to determine where that money went, but it is pretty clear where the bailout money is going."
In the current US economy debt and "money," as we understand it, are basically interchangeable. There is no gold standard to lock our currency to a fixed value. Rather, money is conjured into existence when lent out, an authority granted to banks by the US Central Ban. Taking out a $10k loan lets the bank electronically add $10k to its reserve. Your collateral is the backup value of that loan, and it becomes your responsibility to convert that debt into money (i.e. pay off the loan), whether through income, selling, or more loans.
Defaulted loans are truly instances of money "lost," at least in the sense to which that money existed in the first place. The mortgage crisis (aka lending crisis) basically illustrates that the money perceived in all these losses was debt that could never have been converted.
Federal bailouts will not resolve this scenario, if not further destabilize it. Banks risk collapse with actions like these.
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Ben West (0 articles, 0 quicklinks, 0 diaries, 1 comments)
on Monday, February 25, 2008 at 11:18:27 PM
