United States Heading towards a Depression?

There's been a downward spiral since Bernanke's bailout of subprime to the tune of 700 billion and fed rate decrease to 2%.

 

Dow breaks down under 11600, tied with Christmas '06

March support levels during the Bear Stearns panic are lost, next major support near the 10,000 mark.

 

There is a bill in both houses of congress moving close to ratification with regard to the housing crisis. My understanding is that it has broad support and white house support.

My initial reading of the legislation is that it is an effort to share in the losses anticipated going forward from expected foreclosures in the following way.

Institutions holding loans will be able to negotiate new lower rates on existing mortgages. The holders of the mortgage debt will take losses on the reduced value of the loans. Mortgage holders/ home owners will get reduced payments. The government will have to guarantee some aspect of these new negotiated loans.

The bill was first proposed by Credit Suisse representatives and a second large holder of mortgages came up with a 2nd version of the same idea with more twists and turns. The suggestions were run by many interest groups to negotiate items of contention.

My understanding of this ....is that it seems to work on anticipating further detoriation of the housing market and take steps to mitigate it by setting up some compromise aspect in which each party takes a bit of the loss; the institutions on losing value of the mortgage holders, the home owners by buying into a deal that automatically or via market reactions recognizes some decrease in home value, and the government by providing some level of guarantees.

Sounds sort of good to me. It seems market based with a recognition that things are going downhill.....so lets move there by sharing losses.....and try and keep the thing from turning into pure hell.

I'll be interested to see how this evolves.

Oh yeah....the bill, as with so many other pieces of legislation, has numerous other elements attached to it of different natures. These other aspects have various levels of support or opposition.

The meat of this legislation though, seems like an effort to negotiate a compromise wherein 3 parties (lenders, homeowners, and the feds) partake in the anticipated losses. I like the sense of the bill. The downward spiral of the housing market affects all in the nation. Diminishing home prices from foreclosures wipe out value in homes like mine not affected by the subprime problem. Wealth losses (asset value losses) are diminishing economic activity everywhere, affecting all types of businesses and incomes.

Of interest, Warren Buffet was quoted yesterday on his perspective on economic conditions. From the perspective of his investment company, Berkshire Hathaway that has investments in a broad variety of industries and receives reports looking at anticipated results....he sees a broad slowdown across the board in lots of industries. That is as wide a view on the economy as most of us will see.

 

Honestly, more intervention is just going to extend the pain. Bad mortgages need to be wiped out, people need to learn the lesson and accept responsibility (on both sides) for the mal investment and get the market cleaned up.

I know it sounds heartless, but propping up speculative banks, and bad credit risk borrowers serves no one who does business ethically, honestly and properly. It's a moral hazard.

The danger with continued intervention, is that we could turn this situation into a legitimate crisis ala the Depression. If you recall, the stock market crash was the beginning of the Depression, but the subsequent policy interventions absolutely choked off economic recovery, despite the best of intentions.

 

From what I heard about the 'new housing bailout' bill is that the mortgages would be shifted to Fannie Mae/Freddie Mac/FHA. The bank would take a loss. However, should prices deterioate further the US taxpayers will be paying for trillions of dollars in losses.

Both Warren Buffet and Alan Greenspan have predicted another 20-30% price decline.

We are still in the first inning on the 'subprime crisis' and it's going to get worse. Unemployment and inflation are the driving forces for forclosures and unemployment should hit 6%+ by the end of the year.

A bailout is not goining to significantly effect the buyers ability to pay and will cause further dollar decline.

The investors and buyers need to take their losses just as they took their profits.

 

Dude, is that not what I have been saying all along? Spot on man! Could not agree more!!!

"Heartless"... If you are someone like GURU-SEO no, its arrogant, ignorant and selfish...

Again, this is the same thing I have been saying all along. Nothing heartless there. It's reality. Think about it. Should you or I pay for Ed Ed Mcmahon mansion before it goes into foreclosure? Or how about Holyfield's mansion? Or what about Hillary Clintons millions in debt?

Seriously, a good portion of those in debt are people that have either chosen to live beyond their means, or have more than one home, or too much home. It's not like 90% of the people out there are the average Joe, first time home owners. The properties I look at on a regular basis that are in foreclosure are generally in excess of $400,000.00 and tend to have been bought buy people who KNEW they could not afford them.

I just have no sympathy for people that do stupid things. Nor do I have sympathy for those that let them. And I really do not find it heartless to form such an opinion when I know in the end, you and me Guerilla are paying for this. Meanwhile those that fucked the pooch are gonna be sitting pretty.

I've known people who have fallen on real hard times. I've always been there to help, and I know they would too. One of my very best friends from college had it all. A modest/humble suburbia life, good home, nice car great kids, and a husband that decided he like gay prostitutes.

Things fell apart, the bread earner gone, and 4 kids to raise. She lost the house, car, everything... She was not living beyond her means. The cars were used, the house, very modest, and savings, again modest.

She had gone back to school, so with the bread earner gone, things went to shit. She continued to stay in school, kept working on the side. Me and other friends helped were we could and today, every one of her kids has gone to college. Two to the same one we went to. Two have gotten married, had kids and she's now a duplex owner and of course, college graduate. To this day, her modest lifestyle is still evident.

She was not living in a million dollar mansion, or driving an Escalade or Hummer. Nor is she today. This is a real person that had a real life altering tragedy strike her and her family. Never once did she blame anyone else for her situation. She picked herself back up and started over.

When you experience things like that, its really difficult to have sympathy for the people driving the leased $900/mo SAAB or BMW, who cry that "ITS NOT FAIR"... FUCK EM' That's my take. Too bad. Get over it, move on, and start anew. Just don't try to bring me down with you.

Its the people who don't ask for help that truly need it.

At this point raising rates is almost counter productive. You want to raise them to help curb the lending, while also making a higher rate of return. At the same time you don't want to force more people out of their homes, and also discourage new buyers from buying the overflow when rates go up.

Its a double edge sword at this point. Rate should have gone up the day after I did my refi/lock almost a year ago. I saw what I thought was going to be an increase in rates coming and locked a credit line I have to insure it did not grow to a higher percentage rate if I needed it at some point.

Then the idiots at the fed kept lowering them.

What we need is a split rate hike/reduction setup where by the rate for things like CD's money markets and interest on savings/checking goes up, and the rate at which banks lend or get lent money goes down.

The other conundrum here is with the steep reduction in rates there is absolutely no advantage in saving money. How can you encourage an American public to save money when the rate of return is better gambling.

2.34% on one of my money markets! I was over 6% a year ago. FUCK ME!!!

Saving money is almost useless at that point.

Guerilla, you are not heartless; you're right on track!

 

It doesn't work that way... we have private profits and public losses in this country. Someone decided to call it capitalism and we keep voting for it for some stupid reason so its what we get.

 

Right, when in fact, it is soft fascism. You can only make the losses public with the power of government. So private profits persist at the expense of public loss taking, and it is institutionalized. We're FORCED to subsidize private interests.

When you talk to some people about this, they call you a moonbat or whatever, but the housing crisis isn't the first, nor will it be the last time this happens. But we're so collectively stupid, as you say, we just keep voting for it.

 

OMG, Dow down 348.56...

Oil over $140. Gold back up over $900.

Unbelievable. Tomorrow should be really interesting on the market.

 

Seems to me the markets are not too confident in either Obama or McCain when it comes to energy and the economy. I'd have to side with that assessment. Although, to McCain's credit, he has a plan that does something. Obama on the other hand wants to do nothing.

This too shall pass.

 

We're not that far apart.

GS is my homeboy.

That is why the system will collapse. Capital is savings. If there are no savings, there is no capital for reinvestment. We only get away with these shenanigans because we have the world reserve currency. No one else could get away with this, and when our dollar hegemony ends, so does the good times.

Of course I am.

 

The solution is to reward savings/investment by imposing ZERO tax and high rates of return, at least double if not triple that of the rates currently given to the banking system.

Couple this with the completion of the current correction period we are in, and a settling of the overvaluation of homes and other properties takes affect.

 

The solution is for the market to set the rate of interest, Right now, capital is scarce, and in demand, and difficult to produce. So it's market rate of return would be high. As scarcity was diminished and more capital was available, interest rates would decrease.

The market is self-correcting to account for supply and demand. If we don't f*** with it, and show a little patience.

The FED is doing a lot of damage by producing artificial savings (printing money) while releasing it into the system at unreasonably low rates. They are trying to pour gas on a burning truck, hoping to restart the engine. They might end up with an inflation fireball.

I see you're sticking to the correction language. You're right it is a correction, but so was the Depression.

 

There's plenty of capital finding it's way into the commodity markets.

Loaning more money to people that can't afford to pay back what they have already borrowed doesn't make sense.

The FED is trying to keep the system going. But they are turning what would have been a mild recession into a depression.

 

It's not savings. It's paper money garbage. If it was savings, we would not be seeing so many inflationary effects and currency debasement.

As Mia mentioned, he can't get any value in money markets with his investment capital. Because he can't compete against a government that gives away paper almost for free, why would anyone pay Mia a good return for his savings?

 

A modest gain of 1%, still, and no rise in unemployment. Couple this with the fact that pet owners will only spend an additional 5% on their pets this year.. Yeah, correction.

However, if and when I see 2 consecutive quarters of negative (no growth) GDP, I'll change the verbage.

 

The money market at 2.9% is a lot better than the stock market.

 

I'm not going to go through the indicators for the hundredth time. They are out there, you simply refuse to acknowledge them.

The NBER no longer uses that to determine a recession because they acknowledge that GDP is a lousy indicator. Check their site (or up thread) to confirm.