Housing Bubble Smackdown: Bigger Crash Ahead

Huge “shadow inventory”

by Mike Whitney
Global Research, April 21, 2009

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama’s anti-foreclosure program—which is a combination of mortgage modifications and refinancing—a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that the program will fall well-short of its objective.

In March, housing prices accelerated on the downside indicating bigger adjustments dead-ahead. Trend-lines are steeper now than ever before–nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 MILLION MORE FORECLOSURES BETWEEN NOW AND 2011. It’s a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There’s nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting more hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

600,000 “DISAPPEARED HOMES?”

Here’s a excerpt from the SF Gate explaining the mystery:

“Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity – only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.” (“Banks aren’t Selling Many Foreclosed Homes” SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.

Here is more on the story from Mr. Mortgage “California Foreclosures About to Soar…Again”

“Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season…Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days….The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium.”

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing more price-slashing into the foreseeable future. According to the Wall Street Journal:

“Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can’t meet their loan payments, up from about 1.7 million in 2008.” (Ruth Simon, “The housing crisis is about to take center stage once again” Wall Street Journal)

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama’s $75 billion mortgage rescue plan is a mere pittance; it won’t reduce the principle on mortgages and it won’t stop the bleeding. Policymakers have decided they’ve done enough and are refusing to help. They don’t see the tsunami looming in front of them plain as day. The housing market is going under and it’s going to drag a good part of the broader economy along with it. Stocks, too.

www.globalresearch.ca

It Is Time to Dissolve All Central Banks

It Is Time to Dissolve All Central Banks, a Cancer on their Nations’ Real Economies by George Washington’s Blog

Global Research, April 19, 2009;

As previously noted, the Federal Reserve has failed on its own terms. Specifically, it has failed to provide the counter-cyclical influence on the economy which is its very justification for existing in the first place. Moreover, prominent Wall Street economist Henry Kaufman says that the Federal Reserve is primarily to blame for the financial crisis: “I am convinced that the misbehavior of some would have been much rarer — and far less damaging to our economy — if the Federal Reserve and, to a lesser extent, other supervisory authorities, had measured up to their responsibilities … Kaufman directly criticized former Federal Reserve Chairman Alan Greenspan for not using his position to dissuade big banks and others from taking big risks. “Alan Greenspan spoke about irrational exuberance only as a theoretical concept, not as a warning to the market to curb excessive behavior,” Kaufman said. “It is difficult to believe that recourse to moral suasion by a Fed chairman would be ineffective.” Partly because the Fed did not strongly oppose the repeal in 1999 of the Depression-era Glass-Steagall Act, more large financial conglomerates that were “too big to fail” have formed, Kaufman said, citing a factor that has made the global credit crisis especially acute. “Financial conglomerates have become more and more opaque, especially about their massive off-balance-sheet activities,” he said. “The Fed failed to rein in the problem.”… “Much of the recent extreme financial behavior is rooted in faulty monetary policies,” he said. “Poor policies encourage excessive risk taking.” Even the head of the Federal Reserve bank of San Francisco – during a talk on how runaway bubbles can lead to depressions – admitted:   Fed monetary policy may also have contributed to the U.S. credit boom and the associated house price bubble … This is on top of the widely recognized fact that the Fed helped cause the Great Depression with its faulty monetary policy. Indeed, if even half of what financial writer Ellen Brown says is true, central banks in all countries are parasitic organizations which do not have the best interest of their host nation in mind. The central bank experiment has failed. It is time to dissolve not only the Fed (as Ron Paul, Dennis Kucinich, Austrian school economists, and many others have demanded), but all central banks. Whatever their motivation – whether selfish or altruistic – they have proven to be a net detriment to their respective economies. Source: http://www.washingtonsblog.com/2009/04/it-is-time-to-dissolve-all-central.html

As the Elite Loots the US, Americans become Serfs

 

“Money means nothing without power. This country, as every scholar has pointed out, is a ‘rent-seeking’ one, where the state functions merely to give privilege and largesse to a favored few. First, get the power, then get the money.” Which country was referred to? All of them qualify. However, the writer (Conrado de Quiros) denoted the Philippines (Daily Inquirer, Apr 1). Nevertheless, it’s how the elite and state interact in all nations. We trim, blend, and append two more 2009 articles from: (1) the Wall Street Journal Asia, Apr 2, on China by Victor Shih (author of Factions and Finance in China) and (2) Truthdig, posted on AlterNet Apr 7, on American serfs by Chris Hedges, a Pulitzer prize-winning reporter whose latest book is Collateral Damage: America’s War Against Iraqi Civilians.

 

by Victor Shih and by Chris Hedges

Beijing’s ‘Legless’ Stimulus

Even if China’s stimulus manages to produce some positive numbers, it is likely to fall short. This result is not accidental. It is the outcome of a political system dominated by state planners, large state corporations, and local officials.

The stimulus projects will demand large tracts of land from the local land banks at little compensation. Thus, local governments do not want to “waste” this land on public projects, especially when the central government has set a strict limit on the amount of farmland that can be developed. Local governments sometimes stall on central projects, especially when it comes to welfare housing. In other cases, they forcefully resettle residents with little compensation to reduce the cost of obtaining land. The Ministry of Land and Resources has organized an internal work group to monitor these problems.

Generating employment is not the only means of holding on to power. Powerful rent-seeking lobbies, including the state corporations and local officials who demand their large slices of the stimulus package, directly influence the leadership’s ability to stay in power. Ordinary citizens and small firms, in contrast, are largely absent from the political process, and thus exert no direct influence on the implementation of the spending.

JJS: Amusing that even specialists think that such behavior is specific to the nation they study. But it’s everywhere. And such cheating is returning America to the rest of the pack.

 

Who Should Resist, and Who Will Become Serfs?

America is devolving into a third-world nation. And if we do not immediately halt our elite’s rapacious looting of the public treasury we will be left with trillions in debts and widespread human misery. Our anemic democracy will be replaced with a robust national police state. The elite will withdraw into heavily guarded gated communities where they will have access to security, goods, and services that cannot be afforded by the rest of us.

The Obama administration, rather than chart a new course, is intent on re-inflating the bubble. Vast, unimaginable sums are being placed into corporate hands. They will use this money as they always have — to enrich themselves at our expense.

Since the bailout started last September, the banks haven’t lent it. They have used some of it for acquisitions or to preserve their bonuses or their dividends. If they quit, they get a golden parachute.

Ironically, American International Group Inc.’s former chairman, Maurice R. Greenberg, said AIG would have been better off filing for Chapter 11 bankruptcy protection than seeking government help.

“Bankrupt corporate capitalism is on its way to bankrupting the socialism that is trying to save it,” Ralph Nader added.

Our commitments now total some $12 trillion. It was only a couple of months ago that our expenditures totaled $9 trillion. And it was not long ago that such profligate government spending was unthinkable.

Households lost $5.1 trillion, or 9%, of their wealth in the last three months of 2008, the most ever in a single quarter in the 57-year history of record keeping. For the full year, household wealth dropped $11.1 trillion, or about 18%. These figures did not record the decline of investments in the stock market, which has probably erased trillions more.

We have been borrowing at the rate of more than $2 billion a day over the last 10 years, and at some point it has to stop. The moment China, the oil-rich states, and other international investors stop buying treasury bonds the dollar will become junk. Inflation will rocket upward.

A furious and sustained backlash by a betrayed and angry populace, one unprepared intellectually and psychologically for collapse, will sweep aside the Democrats and most of the Republicans. Fascists will find a following with promises of revenge and moral renewal. The elites will retreat into their sheltered enclaves of privilege and comfort. We will be left bereft and abandoned outside the gates.

The stimulus and bailout plans are not about saving us. They are about saving them. We can resist — which means street protests, disruptions of the system, and demonstrations — or become serfs.

JJS: Every society’s history shows how when a few capture “rent”, that creates class and state and privilege. Thus, to create equality and community and rights as customs, we need to share rents. That is, we need the policy of geonomics — replace counterproductive taxes with land dues for exclusive use of sites and resources and replace addictive subsidies with rent dividends to all citizens. On the platform of economic reform we could enjoy political justice — and far fewer disputes to settle politically.

www.progress.org