Maryland and Virginia Real Estate and Homes Blog

* * * *  HARD CORE REAL ESTATE TALK  * * * *

WHAT’S THE HOT NEWS THIS MORNING?  METALS AND MINING STOCK IN FREE FALL! 

Well, it was!!

You wonder what the housing and banking industry would look like today if the Congressional oversight committees chaired by Barnie Frank and others had looked at the numbers when the Fannie Mae financial statements proved to be falsified by the CEO Franklin Raines in order to provide about $40,000,000 more in income and bonuses to himself.  What would have happened if they had simply asked the question, “what else could be wrong here?”.   If Fannie Mae had not lowered the standards for the secondary mortgage market,would The Wall Street Gangs have been able to get their grubby mitts on the volume of MBSs to fuel the world market for these securities?  Without the MBSs from Fannie, et al., there would have been no worldwide distribution of securities backed by mortgages that were destined to default when the ARMs reset and the owners couldn’t refinance, which was often the justification for taking the ARMs in the first place. 

FACT:  When about 25% of the residential properties in the U.S. cannot be sold for a price that will pay off the mortgage on that property, defaults, short sales and foreclosures are inevitable. 

FACT:  When about 25% of the U.S. properties are “out of the market”, the result is a collapse of the housing market which fuels the economy of the United States. 

FACT:  A viable housing industry is critical to the financial health of the U.S.  

FACT:  The loss of real estate values pushed a high percentage of U.S. home owners into negative equity. 

FACT:  Negative equity caused the loss of the primary financial asset, home equity, of a large percentage of U.S. households. 

FACT:  With no significant financial assets, the U.S. home owners STOPPED SHOPPING for anything but necessities and price became the motivator. 

• Nordtrom:  Down
• Wal-Mart:  Up

THE DOMINO EFFECT:  When the American consumer stops shopping, the world markets for basic commodities respond in a downward price spiral.  In a classic “supply and demand”.  Manufacturers know that, with consumer demand down, prices will fall. 

EXAMPLES: 

Copper prices fell 3.5% on Thursday as warehouse stocks rose and most industrial metals sank. Dismal economic data from the U.S. and Europe added to evidence of ever-weaker demand.      

Mounting fears of a prolonged recession in the US, triggered by grim jobless figures there yesterday, weighed on metal prices and mining stocks, and helped drive the FTSE 100 down for a second day.

“as the effects of global economic downturn caught hold, demand for all commodities weakened.”

THIS IS A CLASSIC bottom up market dynamic.  The consumer stops shopping and the commodities and banking industries falter and fail. 

WHAT IS THE LESSON?  The U.S. and world governments, the U.S. Congress, the Department of the Treasury, the Federal Reserve, the Securities and Exchange Commission all believed that it was the banks that needed to be saved in order to save the U.S. economy. 

WRONG!  WRONG!  WRONG?

Buying “TOXIC ASSETS” of the banks has not worked and could never work.  The banks and financialhouses on Wall Street tnat caused the mortgage mess by inventing and marketing securities without looking at the underlying asset, mortgages that were doomed to failure when the interest rates reset and the home owners defaulted in massive numbers.  THE EXPERTS WERE WRONG!  Giving $Trillions of Dollars to the financial industry was like giving a 14 year old boy control of the family budget.  They are likely to buy a dirt bike before buying bread and milk.  The banks used tax payer money to buy each other and pay dividends.

WHAT’S THE SOLUTION?  Get rid of the negative equity that has caused the financial collapse of the U.S. consumer. 

WHAT WOULD IT COST?  What difference does it make??

                               “Honey, Susie has outgrown her school clothes.  Can we shop yet?”

                             “Not yet, Dear.  Our mortgage payment is going up again next month.”