-- Posted Monday, 12 January 2009 | | Source: GoldSeek.com
Never before in the financial history of the US has the reasons to own gold and silver bullion been as obvious as they are today. Only a fool, a paid flunky or some poor soul believing what a paid flunky says can believe gold to be a “barbarous relic” with no useful purpose. Those who have taken the time to educate themselves understand that the financial system of the world came very close to total collapse back in September.
In this article I would like to share my thoughts on the subprime housing market in conjunction with the derivative sector. My aim is to reveal what I believe to be the main reason for the demise of the world’s financial system and the main beneficiaries of the bailout packages.
IN THE END, DEBT AND LEVERAGE IS NOT THE “NORM!”
The availability of the “easy cash and financing” of the last two decades conned the public into believing that being leveraged up to one’s eyeballs was normal. Our leaders did everything within their power to con the consumer into borrowing money they had very little hope of ever paying back. A home for everyone with two brand new gas guzzling SUV’s in the driveway was the patriotic rallying cry being spewed by those looking to addict the consumer to easy cash and credit.
This addiction to debt and leverage was financially no different from being addicted to crack or heroin. In the end the “bad guys” wind up with everything while the consumer is looking to blame someone else for their lack of good financial judgment while going through “cold turkey” withdrawal.
Many homeowners, caught up in the “American Dream” have drawn all available equity from their homes. Many others paid too much to buy their homes in the first place and are now hopelessly underwater on their loans. The end result of this is the fact that the “piggy bank is crushed and empty!” In short, the “drug pushers” in the housing and credit card industries have robbed consumers of their dreams and possessions while leaving them with only themselves to blame.
THE SCAPEGOAT OF THE FINANCIAL CRISIS!
The financial industry would like the public to believe the subprime housing crisis is responsible for the financial meltdown the world faces today. They have been very successful in selling the public on this as being the major factor behind this meltdown. I personally do not believe this. I am inclined to believe the subprime crisis is the domino that set the chain of events in motion.
The overall financial crisis is a multi-multi trillion dollar mess that even the most intelligent of pundits cannot put a total dollar amount on at this point in time; if ever.
The financial cost of the housing crisis, on the other hand, can be summed up from the Dec 5th Mortgage Bankers Association report through June 08. Below are excerpts from the report.
Dec. 5 -- One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.
The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.
There were 111.7 million occupied housing units in the U.S. in the third quarter, 68 percent used by owners and the remainder leased by renters, according to the Census Bureau. One in three U.S. homes has no mortgage, the bureau said.
The bankers’ report cites percentages without providing the number of mortgages. The U.S. had $11.3 trillion of outstanding home loans at the end of June, according to Federal Reserve data. Mortgage lending fell to $80.8 billion in the second quarter, down from $764 billion a year earlier, the Fed said.
The Mortgage Bankers report is based on a survey of 45.5 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.
From the above I can surmise that there are 111.7 million occupied homes in the US where 2 out of 3 homes carry a mortgage. At the end of June 08 the US had $11.3 trillion in TOTAL outstanding home loans. Of this amount 2.97% are in foreclosure or a total of $335.6 Billion while 6.99% are 30 days or more behind in payments for a total amount of $790 Billion. The two of these figures combined total $1,125 Billion in foreclosure or 30 days past due.
Without a doubt, this number shall continue to rise but these homes shall not be valued at zero and they will be resold for an amount less than what is owed on them. This amount equals 10% of all outstanding home loans in the US. If the homes listed above were sold at half the amount of the outstanding loans the total loss would be $1,125.6 billion divided by 2 = $563 billion and I believe this amount to be high at this stage in the liquidation cycle as there is a very good possibility that these homes will be sold for an amount greater than 50% of what is loaned on them.
Before the housing crisis has run its course a 50% recovery could be high as market prices continue to deteriorate. This is a problem for the housing sector down the road. At this point in time I am only concerned with what is going on in the financial industry today and what the public is being led to believe.
Make no mistake about the fact that the number of homes in foreclosure or 30 days past due is a very serious issue. I find it almost inconceivable to believe the bureaucrats are trying to shove a $563 Billion subprime mortgage mess down our throats as being the reason the world’s financial system is on the verge of collapse.
ON A SEPARATE NOTE!
Homeowners who cannot make their payments should be allowed to go under in order to downsize to more affordable housing. This downsizing would leave the financial responsibility of their failure where it belongs with those who wrote or purchased the paper. In practically all of these cases the current homeowners have no financial reason not to downsize as they have negative equity in their homes in the first place.
Once the failed homeowner has downsized then I believe a helping hand can and should be extended to them. The records show 50%+ of troubled homeowners who have rewritten their mortgages find themselves past due within six months of rewriting their mortgages. This to me is proof that helping these people sustain a lifestyle they cannot afford is not the answer.
If lending institutions start reducing the amount owed on a mortgage to anyone who has fallen behind in their payments the whole country best prepare itself for a total collapse in the housing industry. To reward failure will only encourage more failure.
Why would a homeowner bust his or her tail working 2-3 jobs to make payments if all he has to do is stop making payments to be rewarded with a smaller mortgage and payment? Just the thought of indirectly penalizing those who have exercised good judgment and financial responsibility at the expense of those who haven’t is nothing short of insane!
Sorry I got a little off-track but the financial issues that we face today and how we attempt to solve them will be directly responsible in determining the extent of the loss of freedoms we take from our children tomorrow. Make no mistake of the fact that our children and their children will be paying for the mistakes of our generation long after we have passed from this life. What a great legacy to leave behind for those we love.
I believe it is imperative that we return to a way of life where the individual is responsible for their own decisions be they good or bad.
MY GUESS AS TO THE TRUE REASON FOR THE WORLD’S FINANCIAL FAILURE!
The notional value of the Derivative market is beyond $700 Trillion Dollars. This is an absolute mind boggling number that takes speculation to a whole new level of risk. On one side you have a party that is betting on a certain event happening and on the other side you have a party betting on the exact opposite. It is like betting on a football game where one side bets on one team while the other side bets on the other team with the bookie taking 10% for transacting the trade. Granted there is a small premium paid by one side to the other but in the end it is a bet on the direction in price of a certain financial vehicle or commodity.
The seriousness of the situation is compounded by the fact that there is no limit to the amount of bets that can be placed.
All is fine so long as the loser is financially capable of paying off his bet when he loses. The problem is neither side puts up enough collateral to prove financial responsibility. The overall market volatility of 2008 has created many winners and losers on paper. The winners are faced with the problem of trying to collect on their bets from the losing side of the equation. It is very difficult to collect when the other side is flat broke.
The Derivatives market is an unregulated industry and if my thinking is correct Madoff will look like a “kindergarten brat” when the scandals in the derivatives markets are no longer able to be covered up. Being an unregulated industry means that no one really knows for sure just what the total damage and future liabilities are facing the financial system today.
I personally believe a great deal of the money being created from the TARP Program and any other FREEBE Package that follows is going to pay the losing end of the BET. In other words Paulson has shoved the beginning of a multi-trillion dollar bailout down our throats to pay off the winning side of their derivative bets. I believe the subprime market, though very serious, is a smokescreen to shield payments elsewhere. No monies should be paid to anyone until the taxpayer knows why and where this money is going.
If these gamblers and the financial institutions responsible are not able to settle their own affairs they do not belong in business in the first place. New and reputable financial institutions will rise from the dust to take their place. The financial responsibility for their greed has no business being dumped on the taxpayer who is already buried under an avalanche of debt.
Good luck in seeing any of this money ever finding its way into the system to create jobs to put Humpty Dumpty back together again.
ONLY IN AMERICA!
The thing that disgusts me the most about this is the fact that those who are responsible for the collapse of the system are the same ones receiving and distributing the funds being doled out without any accounting what so ever. These people are so bold that they are still conducting business as usual. They are using these funds to grant themselves exclusive resort vacations and huge bonuses for bankrupting their companies, their stockholders and our Country.
In the end they will use these funds to buy up their competition at bargain basement prices, which they are responsible for, rather than making loans to the deserving public.
These executives should be on their hands and knees begging for forgiveness and assistance. Before receiving a dime they should present comprehensive records showing their losses and a complete business plan going forward while praying to stay out of jail. Instead of this we have the exact opposite. The same people are still in control laughing all the way to the bank thumbing their noses at the rest of the world. This will all come to an end when elected officials are held accountable for their oversight.
POTENTIAL SAVIOR!
I do see a small light at the end of the tunnel.
We now have a man who ran for President and won on a platform of change. Never before have the different races of this Country stood together as one on equal footing. Change and leadership are exactly what this Country and the World are badly in need of.
Only FDR can fully understand the burdens and seriousness of the daunting task that stands in front of President elect Obama. I view this election as the most important election our Country has faced since FDR was elected in 1932. Never in the history of this Country have the campaign promises of a candidate running for President been more important to the people and future of a country than those of Obama’s. I hope campaigning for President and being President turn out to be “one in the same!”
In the end, I would very much like to see a new addition on Mount Rushmore as failure is simply not an option.
I hope to share a few of my own personal favorite stock selections to anyone who is on my FREE E-MAIL LIST. Anyone can sign up and it is free. All you have to do is click on the e-mail link below and ask to be added to the list.
As always folks, these are my own personal opinions and beliefs. It is up to each of you to do your own due diligence and homework as in the end your opinions may differ from mine.
mhoy@neb.rr.com
Mike Hoy,
402-483-4484
-- Posted Monday, 12 January 2009 | Digg This Article
| Source: GoldSeek.com
