corysub
Posts: 1492
Joined: 1/1/2004
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This implosion of our financial system started in three states, California, Florida and Nevada. I remember visiting friends in Santa Monia ten years ago and shook my head in disbelief seeing cape cod type homes that sold in New York at the time for maybe $250,000 - $300,000 in nice areas selling for twice that in Cali. Some people thought of their homes as "trading vehicles" to own for a year or so and than to be sold at a big profit to buy an even bigger home and repeat the same game. It was a fun filled time for people out there. You bought a house, three to six months later it was up ten percent or more, so you re-fi'd the house and put in the pool.
Mortgage money was plentiful with the only qualification it seemed that you be alive at the closing!
Fast foward to a few years ago. Interest rates moved up, the over-speculation in real estate attracted speculation, and the TV was full of shows on "flipping houses", buying with "no money down" and, by the way, you only have to pay the interest on an adjustable three year ARP. And than...and than it started to "hit the fan". Mortgage rates "reset" to not only capture the true interest rate, but mortgages reflected the "true cost" of the original loan with "accumulated" annual interest added to princaple owed. Hundreds of thousands of people had purchased homes well-above their income levels allowed, more people who had speculated on buying two or three condo's as they were being built in order to flip them before they were completed found themselves having to own these properties in an over-built real estate environment...and the houses built on the "sand of poor finance" collapsed like those in a hurricane built on the water. Add to all this the fact that Fannie Mae and Freddie Mac were allowed to insure these "sub-prime" loans in the late 1990's and made the greedy banks, greedy brokers, and greedy Wall Street Investment Banks put a gun to peoples heads to buy this real estate and leveraged their balance sheets where there was only 5% of equity capital supporting their portfolio of MBS's., And there you are... you have now a situation of the sun shining through a magnifying glass focused on trillion of gallons of gasoline. Investors do not want to buy this paper of bundled mortgages, even though the majority of mortgages are not in foreclosure the " bad apples in the barrel" made the entire mortgage backed market toxic.
We have several choices as a country. There is a $700,000,000 plan on the table from the administration that needs to strengthened with over-sight and transparancy. There is political posturing going on now in front of TV cameras from politicians on both sides of the aisle who share as much blame for this explosive and possibly terminal sickness in our financial system as the idiots who speculated in real estate from individuals to institutions. For all of our good, a deal better be ironed out within the next few days.
We are sitting on the worst problem to face every citizen since the depression. Should Congress come up with a Bill that only partially addresses the problem, should Congress not come to an agreement on legislation or hang new programs such as aid to foreclosed homeowners, aid for inner city improvements, and on and on...world-wide investor confidence will be shaken and next week could well be the beginning of the end for hard working, tax paying, mortgage paying people across the country.
Banks could see a run for cash, banks will close even with FDIC insured deposits, commercial paper rates would go through the roof and your company will not be able to finance inventory, salaries, vendor bills, and on and on. Interest rates such as Libor vs $ are already seeing twenty year highs. People will soon see their jobs begin to evaporate and...I don't even want to think about "and"....or "end" "The End" of dreams.
By the way, members of Congress will still have their jobs after you have lost your job or your business. After all, we don't have royalty in this country and we need those 435 people in the House and 100 in the Senate, along with all their courtesans and foot warmers.
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RE: US voters in agreement, economy priority #1 - 
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