Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

We're All Going to Pay For the Housing Market Mess

Housing-Market / US Housing Sep 19, 2009 - 08:08 PM GMT

By: Adam_Brochert

Housing-Market

Best Financial Markets Analysis ArticleThe citizens of the United States will be paying to clean up the collapse of the real estate bubble. It doesn't matter if one participated in the housing boom or not - we are all going to pay and pay dearly for this mess. Renters, owners and speculators are all equally on the hook if they are taxpayers (did you know that 40% of people living in the U.S. pay or owe no federal income tax?).


Now it is true that those who go through a foreclosure or bankruptcy will have much stress and will take a big hit on their credit score. Those who avoided the bubble, have paid off their house in full and/or don't look at their home as an investment but rather a place to live won't have to deal with these stressors, assuming they don't become a victim of unemployment in the months ahead.

But make no mistake about it, a big chunk of the losses from the housing bubble are going to be put on the taxpayer's tab. The first round of the "bailout ball" was forced upon the unsuspecting American citizenry by Hanky Panky Paulson and his crew to "save the world" from a certain and horrible economic death. The second and third rounds will involve similar sums of money but will come from different angles.

First and most obvious is the number of bank bailouts that the FDIC, and thus the American people, will need to fund. The FDIC will absolutely tap its new $500 billion line of credit from the U.S. Treasury. To pretend otherwise is silly and/or dishonest, as hundreds of additional banks are going to fail before this fiasco is over. In the linked article above, Sheila Bair is quoted as saying:

"Marking banking assets to market prices doesn't make sense."

No, of course it doesn't make sense. Telling the truth and doing the rational and responsible thing would immediately bankrupt our entire banking system overnight. It is much better to pretend that you haven't lost any money on any of the assets you have and instead tell people that they are still worth what you paid for them, even if their value has been reduced to zero. This is our government-banker keiretsu hard at work discouraging reality, honesty and integrity. If the head of the FDIC feels this way, there is no hope for improved transparency of bank balance sheets and no realistic way to fairly value these banking firms (Stay away! Sell!).

In the mean time, these bank "assets" are trending towards zero or less than zero (in the case of some derivative instruments and homes that have gone through severe "trash outs"), which means that when the FDIC finally does step in, it will cost U.S. taxpayers much more than biting the bullet and bailing out these banks now. All the profits for bankers are and will remain privatized but any and all of the big losses will be put on the taxpayer's tab as much as possible. The larger banks are not stupid and have found a way to try to salvage some extra profits out of this mess (in addition to being able to stay in business) by asking their pre-bought bureaucrats to jump into the shark pool.

This is where the second of the two remaining big components of the government housing bailout comes into play. This is even more nefarious than the direct bank bailouts. It has to do with Freddie Mac, Fannie Mae, the FHA and Ginnie Mae. These institutions are now guaranteeing 90% of new home loans generated in this country, including the refinancing and modification of loans gone bad. Why make lots of loans in the middle of a real estate collapse? Oh yeah, I forgot - it's because all the inevitable losses will just be put on the taxpayer's tab, so who cares?

This is, in essence, a transfer of toxic loans from private balance sheets to the government balance sheet. Underwriting standards have been subprime and lax for these new government-sponsored loans. Private mortgage originators are going hog wild signing up anyone with a pulse who still wants to buy a house (Don't buy - rent!) if they can meet the government standards because these originators know they can turn around and pass the hot potato onto the government, making a profit/commission in the process.

In the mean time, these loans are already going bad at a alarming rate akin to subprime loans. Capital reserves are dangerously low at the government sponsored entities and rapidly declining, which means more taxpayer money will be needed down the road to bail these quasi-companies out (don't believe articles like this where officials say they won't need extra funding - they will). The low down payments and lax lending standards required for many home loans are what helped get us into trouble in the first place and I would hazard a guess that many of the home owners partaking of these new toxic government loans are going to be close to underwater by the time the ink dries on the final loan documents.

This scheme is also why private banks are ignoring overdue debtors for up to 2 years without finishing the foreclosure process. Not only have Sheila Bair and other apparatchik ilk encouraged private banks to avoid taking losses by allowing banks to keep home loans on the books as assets with an inflated and unrealistic value to bolster their balance sheet and make them look vaguely solvent, but the other part of the plan for banks is to stall while trying to find a way to get their toxic loans onto the books of Uncle Sam and the American taxpayer. They will find a way, believe me.

The private, non-federal, for-profit federal reserve corporation is warming up to the scam and moving things along nicely by purchasing large amounts of commercial and residential mortgage debt. This, of course, will all be foisted onto the taxpayer tab at the opportune time. When this occurs, it will sold as "an investment," but this will be yet another cruel joke on the American people.

So, in the end, it's all coming together for many bankers. The housing and commercial real estate collapse continues unabated and the bill is increasingly going to be put on the U.S. taxpayer's tab, allowing many bankers to get off scot-free and pocket some dough in the process. This moral hazard Uncle Sam is creating ensures more risk-taking and speculation in a real estate market the government has no business encouraging people to speculate in right now. It also absolutely guarantees an even bigger disaster down the road for Uncle Sam's balance sheet. Privatizing gains and socializing losses - damn it feels good to be a banksta!

Such moral hazard also encourages debtors to just walk away from any bad housing debts. When people aren't paying their mortgage, they rarely will make property tax payments, so this federal government interference/moral hazard and willful banker neglect of past due loans will also impact local governments tremendously. It is likely that these local governments will try to squeeze some blood out of a stone by asking those left standing who either own their homes or still pay their mortgage to pay higher property taxes. Being financially responsible increasingly means being asked to bend over and accept higher taxes and/or currency debasement while feeling "left out" of the debtor party.

Many citizens support the government "stabilizing" housing prices based on self interest. Yet such folks don't realize that government can only waste money while making things worse for the whole country and not doing anything but prolonging the pain that has to happen to allow the market to heal. Bad debts must be liquidated, not hidden or subsidized. Government cannot "stabilize" housing, but they can put lots of toxic liabilities on the taxpayer tab while the real estate market proceeds lower to the same levels it was going to go anyway.

Unfortunately, all of this government interference does mean that housing will take longer to find its true bottom - I think we're looking at 2014 or later. It also means that the government debt load is going to increase astronomically over the next few years (what's a few extra trillion, eh?), almost ensuring a serious currency dislocation at some point down the road. Be sure to watch with feigned amusement when the apparatchiks tell you in a year or two that no one saw it coming as the next bailout is announced or a currency crisis/capital flight rears its ugly head. Home sweet home, my ass. We're all going to pay for the housing mess - one way or the other.

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2009 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Lucy
24 Jan 12, 05:29
to stop foreclosure

This is terrible. We are already paying for it and thanks for bringing it into people attention so that they can know the facts. I face thousands of questions in my emails daily regarding this and i want others professional advices too. If you would like to contribute.

http://www.righttocancel.com/questions.html


Post Comment

Only logged in users are allowed to post comments. Register/ Log in