Tuesday, November 20, 2007

Fantasy Land No Longer Accepting Reservations

My poll question on bad news dropping this week was meant as a joke. Thanks to Freddie Mac and ACA Financial Guaranty Corp it seems what is usually a quiet week has erupted in fireworks! We still have Wednesday to boot!

Fantasy Land No Longer Accepting Reservations
The shear velocity of the collapse of the mortgage industry is breathtaking even for someone like myself that predicted the event years ago. For a specific rundown on the big news today, I direct you to the fine blogs on the blogroll or Yahoo Finance to get caught up. I want to spend some time trying to send a wake up call to any and all that can be reached.

At this point in the housing bubble collapse, here is a summary of the situation as it stands in reality:

  • Home prices have declined by a substantial margin. Home prices will continue to decline, especially in formerly "hot" markets, for the next 2 years at least.

  • Home prices skyrocketed without respect for income, employment, or demographics. It is time to stop thinking any of those factors will halt the skid on the downside.

  • Mortgage lenders (CFC, FNM, FRE, etc) never were properly capitalized for anything other than optimal housing markets. Not one bank is going to be able to cover the losses from soured loans.

  • Mortgage insurers (ACA, PMI, etc) were phantom insurers and they simply cannot provide any relief for the situation.

  • FED rate cuts cannot do anything to stop this process. The FED cannot "save" housing. The only implement the FED has is rate cuts, and given the inflation and dollar problems right now they should not even bother. The LIBOR rate has fully decoupled from the FED rate now anyway, and thus mortgages are not getting any cheaper.
That's reality. It is now Grown Up time folks. Enough with the "its just subprime" malarkey. Stop the "its a one time write down" gibberish. Cut the "FED to the rescue" farce. End the pretending that "the market is pricing all this stuff in and looking ahead" optimism. The US faces a systemic banking crisis due to the incomprehensible losses already incurred from bad loans. The losses are going to continue. We need to have a national discussion right now about the following:

  • How much money is going to be lost?

  • How bad is the damage to the system?

  • What is the hit to the Taxpayer?

  • How can this be stopped in the future?
We need serious people right now that can take on these issues. Sadly we do not have them. The action in Gold and the Dollar seem to predict some serious FED rate cuts. (I had opined that they were both being manipulated down before some kind of calamity, and now I am starting to think I was right) Rate cuts cannot help anything, and the destruction of the dollar and personal savings should not be policy to save banks. Reap what you sow. Leverage, derivatives, and lending run wild has its price. Its time to pay up.

If you pay taxes this should matter to you. If you have money in any US bank this should matter to you. If you own a home this should matter to you. If you reside here on Earth this should matter to you.

Is the world going to end? Eventually the Sun will go supernova, so yes it will. The US will not collapse due to this. People are not going to starve. A recession is not going to cause civil war. Lets stop pretending that it will. The FED seems so bent on preventing a recession and trying to prop up home prices, they seem willing to destroy the currency to do it. Lets try to force the powers that be to take a step back and take a deep breathe. Things will have to be painful and time will be needed to repair the damage done. We cannot allow fear and banking financial interests to be serviced at any cost. The children of Wall Street have misbehaved, and it is time for punishment. Lets hope we can stand the crying.

By all means, leave some comments and discuss the situation. Email links and news to people you know so they may start to see the problems. We are at the edge here.

Have a good night.


Anonymous said...

Standing on the edge of the Abyss looking down seems scary. Your post is to the point correct and would be a prudent direction to head in. But after watching Bush standing by a Turkey today gave me chills. Considering everything that should be done to correct the problem (or not do to correct the problem) wont be what happens and we all know it. What's going to happen will amount to two things:

1. Big Money/Gov't Will Win
2. The rest of the peasants will loose.

End of line.


getyourselfconnected said...

sure look like that is the way things are shaping up. I wonder if the fools that brought this mess upon the system are going to go without a year end bonus this year? I gonn guess they still get one!

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Anonymous said...

i like to add:

there is no 'out'. someone will lose. the federal gov can not bail out the housing industry. someone will lose - either the taxpayer or the mortgage industry.

Anonymous said...

I would also like to add the old saying that "Shiza Rolls Downhill".


PS Have a Great Thanksgiving Everyone!