Reading Housing Bubble Blog gives an idea how widespread the subprime collapse is. They post news from all parts of the country. Lots of people are getting hosed, losing homes, in debt way past anything they can hope to repay. Meanwhile, in Sacramento, Casey Serin’s little bubble has imploded catastrophically for him. He’s lost all his houses, is about to get evicted, has no money, and his car just got broken into and burgled.
The subprime crisis is expected to worsen, says the chief executive of Freddie Mac. That’s because the most problematic ARMs, those from 2006, haven’t reset yet. This means what we’re seeing now is just the leading edge.
The US economy is slowing, with fears of stagflation. The collapsing housing market is the “main culprit.” To fight inflation (and to keep China and Japan buying t-bills) the Fed needs to raise interest rates, but as the head of PIMCO recently stated, the only way the Fed can stave off precipitous drops in the price of real estate is by lowering rates. That they will raise rates is, I think, a given.
The subprime racket was a giant Ponzi scheme that transferred billions from the poor and middle class to the already wealthy. The greedy pig investment banks and sleazy mortgage companies who foisted this on the public knew exactly what they were doing. Brokers have been going to prison, but it’s way past time for investment bankers to get indicted too.
Sue says, wait until the accounting scandals start hitting the mortgage companies. Expect another big shakeout, one that could impact investment banks too. Also, watch the allowances for bad debt, as they are probably way inadequate.
This has been a giant transfer of wealth to the ruling class from the rest of us. But they got so greedy and larcenous this time that it’s blowing up in their faces.
We need an economic system where this kind of exploitation isn’t allowed to happen, where government is beholden to the people not the wealthy.