Next Republican economic debacle about to hit: Home equity loan crisis
Matt Gunterman December 17th, 2007
Dennis Jacobe, who’s the Chief Economist for Gallup, has a writeup about the nation’s next bit of economic turmoil: the coming crisis in the trillion-dollar home equity loan market.
Here’s Jacobe’s conclusion:
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Fed Needs to Change the Consumer/Investor Psychology
As the so-called “subprime”-related losses have been felt worldwide, structured financings and even the securitization process have come under increasing stress. But today’s financial market stress, and the volatility it has generated on Wall Street, has yet to be fully reflected on Main Street. More importantly, the anemic response of public policy-makers to the potential for widespread mortgage foreclosures and housing price declines unseen for many decades leaves much to be desired. Now, we can add a Fed that seems more interested in econometric analysis and geopolitical globalization than current investor/consumer psychology.
Currently, lenders are tightening their underwriting standards to the old norms in response to their “subprime”-related losses and the mortgage lending excesses of recent years. These are much-needed changes, but the current tightening reflects past excesses in the mortgage and housing markets much more than conditions in the consumer lending markets. But these are just the beginnings of the consumer credit crunch set to unfold in the months ahead.
What the Fed should have done was to take every action possible — cut the federal funds rate by more than 50 basis points, reduce the discount rate even more, and make it clear that it would continue pumping liquidity into the system as necessary to free up the credit markets — to get out ahead of the “other shoe to drop” in response to falling housing prices and poor underwriting standards: the coming home equity lending debacle and its effect on consumer credit availability. Unfortunately, as was the case with the so-called “subprime” mess, the nation’s monetary authorities are now positioned to be reactive as events unfold in the credit markets — often not a winning strategy.
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It’s not a pleasurable thing to see the economy go into steep recession (and that’s where it’s headed). It negatively affects all Americans of whatever political ideology. However, a longterm benefit of that near-term, mutual pain is that, once again, Republican economic policy will be revealed to the latest generation as the snake oil that it is. And the end result will be marginalization of Republicans and their return to national minority status for the better part of a generation.
In fact, after 2008, it’s likely that by the next time the Republican Party has a chance to dominate the federal government as it has between roughly 1994 and 2004, same-sex marriage will be a social norm. So, yes, we’re talking a long time before Republicans regroup and find their ideological footing.
Likewise, whatever the result at the ballot box against Sen. McConnell in 2008, the project to place him in the proper context of the severe detriment to American democracy that he represents is a generation-long affair. The monstrous career of money-grubbing, influence-mongering, and hyper-partisanship of Mitch McConnell will be to the history of the early 21st century United States what Sen. Joseph McCarthy (R) is to the second half of the 20th century.
Just as today we still hear the term McCarthyism lobbed around, there will come a day when, in remarking on tactics of legislative obstruction, Senators accuse one another of McConnellism.
And when that day comes, Mitch McConnell will have inherited the legacy he rightly deserves.
- Economy , Mitch McConnell , Republican Party Decline
- Comments(11)
We hope Mitch keeps giving ANDREW HORNE gifts like these:
McConnell, and Bush, are trying to play down the war, and play up this failed economy.
WHAT:
The US Federal Reserve is making billions of dollars available to major banks in an attempt to ease concerns about a global credit crunch.
WHY:
A wave of foreclosures and evictions is about to sweep the United States in the wake of the sub-prime mortgage lending crisis.
Thousands of sub-prime mortgage holders have already defaulted on their payments because of the burden of higher interest rates and have lost their homes as a result With an estimated 2.2 million homeowners who took out loans with discount “teaser” rates facing higher payments next year, it is feared that many others could suffer a similar fate.
Bush and Mitch have a plan : Bail out the banks, and help about 20% of those 2.2 million homeowners.
GREAT JOB BUSHIE & MITCHIE
Here’s some background I offered the Danville Advocate-Messenger in a letter to the editor sent to them Saturday night. On their Friday front page was an article about Realtors whining about the sour real estate market, blaming it all on bad press, but totally disregarding the roles the Fed and the Bush administration had in creating this debacle. Here t’is:
Realtors missed the mark in blaming national bad press for the emergence of a buyer’s market in Danville. If a crisis in economic confidence afflicts local buyers and sellers, there’s good reason. The guns and butter economic policies of the federal government have run amuck. Time’s come to ante up for the Iraq War. The mortgage debacle is just the beginning of a down payment.
Recall what we were told following 9/11? Go shopping. In repetitive appearances before Congress, the ebullient Fed chairman Alex Greenspan reported a national house buying spree, fueled by repetitive financing and refinancing. Mortgage money spilled into equity loans, that spilled into Wall St., that flowed into equity markets. American’s homes kept the economy afloat. No need to worry about over-the-top defense spending. So said the Fed.
Then things got a little out of hand. Under the Fed’s watchful approval, Wall St. made an equity grab for the only savings account most Americans have, their home. Adjustable rate loans, both prime and subprime, went out of control like girls gone wild on spring break. Phantom fees appeared suddenly on borrower’s balances. Payments doubled overnight. Loan balances exceeded market values unexplainably. Credit card companies piled on, raising credit card rates to 30%, if they found a late mortgage payment. Wall St. had borrowers cornered. The borrower could not pay. He could not repay. He could not refinance. He could not sell. All he could do is fork over his home and savings, and move out of the way.
Now, Americans are forced again into keeping the national economy afloat, at least until this administration can leave office. Central banks from China, Canada, and the UK already are on a buying spree of American financial institutions. The only place the dollar floats now is in the toilet. The U.S. Government’s offers HOPE NOW to Wall St. alone, not to homeowners in trouble, or to those already dispossessed of home and savings. They’re refuse, like Katrina victims.
So forgive us, Realtors. It’s not you. It’s not media. Foreclosure and bankruptcy turned epidemic in America this year. Maybe not in Danville so much. We’re a small a town. Fewer people.
But just look at what happened to the Edna Toliver home here. The mortgage was $190,000. At commissioner’s sale, the lender bid $254,000 in the glee of insanity. Now it’s for sale at $160,000. That scares us. Those financial predators are still out there. Even if we wanted to buy, who knows what to expect of them? And there’s still the war, yet unpaid, and yet out of control like lenders gone wild.
We haven’t seen the worst of it yet. The head of Fannie Mae says it won’t be over until 2009, at the earliest.
I’m waiting for Bush to come out and tell us again how many people own their own homes, or should that be how many people used to own homes.
Without a doubt, worst president EVER.
I keep reading on (from conservatives, mostly) that the War in Iraq will not be the main issue in 2008, and that it will, instead, be economy. This is typically written in a sort of gloating sort of tone, my response, to which is, “That is supposed to help Republicans, how?” Just another nail in their coffins as far as I’m concerned.
don’t you just love this trickle down economy!!!
The economy is proving to be the main issue of the voters and they’re not happy with it. I’m not seeing it getting any better for the middle class anywhere soon. Bush’s adamant dislike for the have nots is obvious. Considering how Mitch has marched lockstep(if not behind with his head up Bush’s ass), he’s gonna have to sell a different snake oil. Toppling Mitch is gonna be a tall order but I’ll be there to cast my pebble. Andy
Seriously, who’s Andrew Horne?
And how the crap could you possibly think that banks giving too much money to people who can’t afford it is the fault of Republicans? I don’t remember President Bush running on a “let’s give too much money to people on variable rates” platforms. In fact, I think that sounds more like a Dem issue… “If we give the welfare mom a rate at a reduced rate for four years then in four years time she will miraculously be able to pay the normal rate, even though she has no job skills. If we just keep spending government money on social problems they will disapear…right?”
oh please, all you dems have said for three years is “Iraq, Iraq, Iraq” and as soon as it’s clear (and it is) that the surge is working you realize you’d better cut your loses and try to start a word-of-mouth recession. Keep it up, you’ve almost spooked enough people into taking their money out of enough local economies to start one.
Rory, slow down here a bit as that froth you’re spewing may short circuit your keyboard. Are you suggesting “the long, hard slog” is over? There appears to still be $2,000,000,000,000 a week still being spent on an occupation going on to protect Bush’s reputation, so he cannot be held accountable for losing the war. How many of Prime Minister Nuri al-Maliki’s political objectives been met? As the bar lowers, expectations weaken, rhetoric flows freely, and still no exist plan in sight, although a lowered casualty rate in a secluded area is welcomed, it ain’t no “mission accomplished”.
Rory,
Andrew Horne served in Iraq. Bush and McConnell had their chance to serve and you know that story.
Lying about WMD, destroying CIA tapes and torturing folks are not Democrat or Republican issues, they are moral issues and define what we are as country. If you’re satisfied with that, so be it.
Yes we can, and will continue to, lay the blame for a world wide economic crisis on this republican administration that abdicated it’s responsibility of regulatory oversight.
The Usury Laws have been completely ignored, during this administration. Allowing the financial institutions to ignore these basic tenets has produced a Ponzi scheme that has resulted in bank failures around the world!
Tax cuts that mythically pay for themselves have increase our national debt by 32 trillion dollars since the 2000 election. That’s $422,000 in debt for every American household! You can’t defend that with any facts!
Republicans just can not seem to base any of their policies on reality. They prefer fantasy, zealotry, bigotry, and an economic policy based on fairy tales.
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